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Reverse Mortgages, Explained

Taking a Closer Look at Your Mortgage Options in Retirement

Do you need more cash for retirement? Reverse mortgages are loans designed specifically for retirees. They’re great options for homeowners who want to pay off debt, fund renovations, or pad their budgets for medical bills or living expenses. But how do you know if a reverse mortgage is the right option for you?

If you have home equity that you want to convert into tax-free cash, a reverse mortgage might be the best way to do it. But before you take the leap, make sure you have the facts about the reverse mortgage process, from eligibility requirements to options for accessing and repaying your money.

So, how does a reverse mortgage work, what can it do for you, and how do you qualify for it? Here’s what you need to know about this popular retirement income tool.

What is a Reverse Mortgage?

Reverse mortgages are designed to relieve financial burdens and free up extra income for retirees. For example, the CHIP Reverse Mortgage allows you convert up to 55 percent of your home’s value into tax-free cash. After paying off your mortgage, you may use the rest of the loan to pay off other debts, cover medical expenses or daily living expenses, or even invest in home improvements to generate more property value.

Breaking Down the Reverse Mortgage Process

So, how does a reverse mortgage work? This loan turns a portion of your home equity into money you can access. You may borrow this money as a one-time, lump sum payment, or you can choose between recurring or single payments that are spread out over time. During this time, interest will continue to accrue, but you’re only responsible for maintaining your home and paying utilities. Repayment is not required while you live in the home.

Do You Qualify for a Reverse Mortgage?

Reverse mortgages are only for retirement-age homeowners, and your circumstances and property will affect your loan options. Reverse mortgages are available with fixed or adjustable interest rates, just like traditional mortgages, and you may choose your payment options too.

Figure out whether you qualify for a reverse mortgage – and which mortgages – by answering these questions:

  • How old are you? You must be 55 or older to qualify for a reverse mortgage in Canada.
  • How old is your spouse? If you’re both on the property title, both of you must be 55 or older.
  • Where do you live? Your location affects your mortgage options in a few different ways. For example, to qualify for a PATH Home Plan, you must live in a major urban centre in Alberta, Ontario, or British Columbia.
  • What kind of house do you have? For example, is it a condo or townhouse? Is it attached to other dwellings, or detached? Your lender will assess
  • What condition is your home in? Defaulting on a reverse mortgage is difficult, but letting the property fall into disrepair and decline in value is one way to do it. Lenders want to make sure your home is in good condition to retain its value.
  • What is the value of your home? You’ll need an appraisal to determine your current market value.

Other Options if You Don’t Qualify

Don’t meet the eligibility requirements for a reverse mortgage? If you need an alternative source of cash, your home may still be an option. You have other mortgage refinancing options to consider, including home equity loans and lines of credit. As you compare different loan programs, pay attention to interest rates, repayment requirements, and risks.

Home Equity Line of Credit vs. Reverse Mortgage: Which Loan is Right for You?

One of the most important mortgage mistakes to avoid is not dealing with an experienced mortgage broker team, such as the Chris Allard mortgage team. Shopping around for quotes on your own might seem appealing, but it’s a ton of work, and you won’t have access to reverse mortgage providers. Professional advice and insight are a must, giving you access to a wealth of information and detail about mortgage products, including secured lines of credit through a variety of banks, credit unions, and mortgage companies.

How different is a home equity line of credit? The main difference between these loans is the repayment requirements. While interest rates tend to be lower for home equity loans, you must pay this interest – and some of the loan principal – on a regular basis.

Can you pay back a reverse mortgage? Yes. But do you have to pay back a reverse mortgage? Only when you choose to sell your home. You get to keep any profits from appreciation, and you’ll never repay more than the fair market value of your property.

Are you ready to start exploring your reverse mortgage options? Contact the Chris Allard Mortgage Team for more advice today.

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